Goldman to offer bond using total return swap

Goldman Sachs (GS +1.3%) is planning €10B in sales of a controversial new type of bond that utilizes total return swaps, at the same time the derivatives are gaining popularity in the market due to the historic lows of credit investments.

Total return swaps allow investors to gain exposure to a portfolio of bonds or loans without actually having to come up the cash needed to own such assets. Investors pay money to a bank or other counter-party in exchange for income linked to the performance of the underlying basket of securities.

The new bond is being classed as a "covered obligation," and uses a total return swap struck with Mitsui Sumitomo Insurance on a changeable portfolio of fixed income assets.

S&P already gave the offering a AAA rating, but Fitch warns that the deal’s "structural protections and collateralization levels are too low" to warrant such a designation.

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Comments (6)
  • wyostocks
    , contributor
    Comments (9119) | Send Message
    Smells a lot like those fabulous investments called CMO's a few years ago.
    Dodd Frank sure has stopped Wall Street from repeating the errors of the past crash.
    22 Jul 2014, 10:43 AM Reply Like
  • convoluted
    , contributor
    Comments (2503) | Send Message
    "Happy days are here again,..."
    22 Jul 2014, 10:45 AM Reply Like
  • Director one
    , contributor
    Comments (62) | Send Message
    A return to 2007 with this creation brought to you by the same PERPS. I wonder what the rating is on the JAP insurance company...........and it's ability to pay in tougher times... No doubt the FED and SEC approved. This ought to collapse every one' CDs.
    22 Jul 2014, 10:48 AM Reply Like
  • Investing_novice
    , contributor
    Comments (3) | Send Message
    While this eerily has the rating fallacy that came with the CDS's and CDO's that ruined the economy 7 years ago, I don't understand how these Total Return Swaps are all that similar to CMOs.


    The value of these bonds are based on an underlying basket of securities (are these securities known?) not on some risky mortgages that have been dolled up to look like a sure thing.
    22 Jul 2014, 11:39 AM Reply Like
  • chopchop0
    , contributor
    Comments (5351) | Send Message
    GS.... making the world a better place through its sheer existence.
    22 Jul 2014, 11:51 AM Reply Like
  • swaps
    , contributor
    Comments (1605) | Send Message
    No wonder the real economy continues to languish. No money trickling down to boost real world where the real people are.


    One assumes GS has read The Big Short by Michael Lewis and now fully understands what it is doing.


    It is good to see why Congress bailed out the they could move on. To better and bigger.
    22 Jul 2014, 04:13 PM Reply Like
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